The consensus view is becoming entrenched. Oil prices are rising, inflation risks are re-emerging, central banks remain data dependent, and bond markets are responding accordingly.
Brent crude is approaching $US100 per barrel, West Texas Intermediate is near $US90, and investors are again debating whether inflation is proving more persistent than expected.
The logic appears straightforward. The Strait of Hormuz remains compromised while threats to shipping through the southern Red Sea continue to affect global energy flows. Oil supply remains vulnerable, and markets are recognising that higher energy prices feed directly into inflation.
Yet, there is a risk that investors are focusing too heavily on today’s shortage and not enough on tomorrow’s response. The cure for high oil prices remains high oil prices. Focusing on today’s shortage may be underestimating the supply response it is likely to create.
Higher prices encourage conservation, efficiency, investment and new production. The inflation scare may intensify before it fades, but history suggests acute shortages ultimately provoke adaptation.
Source: https://www.afr.com/markets/debt-markets/why-the-inflation-scare-may-peak-before-the-war-ends-20260730-p60jzu